Thomas Corp Thomas Will Distribute $44,000 to the Two Classes of Stockholders

question 105

Short Answer

Thomas Corp. has the following number of shares of stock outstanding: $\begin{array}{l}\text { Cumulative Preferred stock, } 8 \%, \$ 100 \text { par, }&10,000 \text { shares } \\\text { Common stock, } \$ 10 \text { par } &10,000 \text { shares }\end{array}$
Thomas will distribute $44,000 to the two classes of stockholders this year. Not counting the current year, the preferred stock dividends are two years in arrears. Indicate whether each of the following statements is true or false.
1. Thomas' common stockholders will receive $36,000 of cash dividends
2. The amount of dividends in arrears on preferred stock is zero after the $44,000 of dividends have been paid
3. If the preferred stock was not cumulative, the dividends not paid in previous years would not be paid in the current year
4. When preferred stock is cumulative, no dividends can be paid on common stock so long as there are preferred dividends in arrears
5. Preferred stockholders will receive $24,000 of cash dividends

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Definitions:

Carrying Costs

The total cost of holding inventory, including storage, insurance, depreciation, and opportunity costs.

Storage Costs

Expenses incurred for storing goods, which may include warehousing, refrigeration, insurance, and security expenses.

Pro-forma Cash Flow

An estimate of future cash inflows and outflows of a company, usually projecting future financial performance.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits over a specific period, typically a quarter or year.